On the money: Heinz to ramp up marketing

Heinz said marketing spend will “increase significantly” in the second quarter

US food giant Heinz has said it expects a "sizeable" increase in marketing throughout the remainder of its financial year.

Heinz, which yesterday (29 August) reported a 10% increase in first-quarter profits, said marketing spend will "increase significantly" in the second quarter behind a number of new initiatives in the US, the UK and emerging markets.

"You're going to see Heinz spend in marketing like you've never seen us before, and we're very excited about all of the launches and the brand support that is coming out," said Margaret Roach Nollen, SVP of investor relations.

Heinz said it spent US$460m in advertising in fiscal 2012, with $530m earmarked for fiscal 2013.

"The marketing really is going to ramp up through the remaining quarters," CEO Art Winkleback told analysts. "Marketing spending was up on a constant currency basis in Q1, but it will be up very significantly in Q2 and then in the remainder of the year, basically timed with the timing of our programmes, the ideas and ready for the initiatives."

Heinz yesterday booked a 9.5% gain in net income from continuing operations to $279m, excluding the impact of a productivity programme on its results a year ago, for the quarter to 29 July.

Emerging markets helped the results but the ketchup maker also cited "improved results" in the US, although operating income from its North America business fell year-on-year.

In its last financial year, which ran until 29 April, Heinz saw its consumer products sales fall in North America.

Scott O'Hara, who left as head of Heinz's North America business in June to be replaced by Dave Woodward, admitted at the time that he was "not happy" with the results from the company's North American business "especially on the top line".

However, speaking on the firm's earnings call yesterday, Winkleblack said Heinz reflected a "solid and encouraging" performance in the US. Woodward, he said, was "bringing great energy and enthusiasm to the role".

"He's working to drive what he would call a demand-driven recovery. So I think he's focused on the big brands and you saw that we've exited a few of our smaller less advantaged brands, so we're really gearing the focus on those big brands.

"Volume shares were up in nine out of 12 categories, so we're pleased with that while our average price is up, so investing in the business, driving some innovation and we're - I think there's work to be done. But we're pleased Dave's on the case."

Europe, meanwhile, is "a tale of two cities" for Heinz, Winkleback said.

"If you go to either end of the continent, we're performing extremely well. So Russia and the East in particular had a great quarter. We feel really good about the momentum in Russia both from a top line and a gross margin standpoint. And the UK business continues to be a fortress for us given the strength of our brand equities there and the power of the innovation and execution within the business. So at both ends of the continent, we feel very good about things."

However, he pointed to the middle of the Continent, which he described as a "tough" market.

"In Continental Europe and Italy, consumer confidence is low, unemployment is high. And so it's a challenging market there, and I think we continue to evolve our products and our packaging to meet that environment."

Heinz said sales in emerging markets increased by 19.3% on an organic basis, pointing to growth in Indonesia, India and Brazil. Emerging markets account for 26% of revenues.

Winkleback said the company feels "very good" about where emerging markets and was sanguine about concerns of a slowing economy in China.

"A lot of the discussion of slowdown in China ... I guess they've slowed down the GDP growth rate of about 8% at this point, which most countries would love to have. But I think it's more on the industrial side. Frankly, the exploding middle class in these emerging markets are just coming into their own in terms of ability to afford packaged food, and so I think we are very, very well positioned and we feel very good about the ongoing trajectory of what we think the growth rates will be of our kinds of products."

Separately, Winkleback said the company was working on a "very active" pipeline of M&A, adding that it has "a lot going on, on that front".

"Obviously, I can't speak about specific opportunities, but there's a number of them that we're working. The pipeline is very full. We - especially in emerging markets, we tend to be very thorough and patient to ensure that we end up with the right strategic fit and we don't overpay. So we're excited about it. We're working on things. We'll keep you posted."

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